TMI Blog1993 (5) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Securities Contracts (Regulation) Act regarding maintainability of suit in civil court - Held, no - Whether plaintiff had made out a prima facie case for an injunction restraining defendant from carrying on business akin to that of a stock exchange within District of Ernakulam - Held, yes - Whether defendant was entitled to enter into spot delivery contracts - Held, yes - C.M.A. NO. 88 OF 1993 - - - Dated:- 31-5-1993 - P.K. BALASUBRAMANYAN, J. C. Pius Kuriakose for the Applicant. Mathew Zachariah, K. Ramakumar, S. Ananthasubramanyan, S. Shyam and S. Parameswaran for the Respondent. JUDGMENT Balasubramanyan, J. These appeals by the various defendants in O.S. No. 175 of 1993 on the file of the subordinate Judge's Court of Ernakulam, challenge the order of injunction granted by the Trial Court restraining defendant Nos. 1 to 5 from starting, functioning or organising dealings or from functioning in securities in any manner from building Nos. 36/1602 to 36/1605 in Elamkulam Village, Kanayannur Taluk, Ernakulam District, till the disposal of the suit, defendant No. 1 in the suit is a company incorporated under the Companies Act, 1956 and defendant Nos. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in the Ernakulam District. Defendant Nos. 2 to 5 who are also members of the Cochin Stock Exchange Ltd. along with others had established another public limited company, Mayura Securities Ltd., impleaded as defendant No. 1 in the suit with a view to give membership to a large number of persons to function as stock brokers and permitting dealings in securities in their business premises. It is also averred that the first defendant-company is maintaining a trading floor in its place of business. According to the plaintiff, the activities carried on by the first defendant-company are illegal and are against sections 13 and 19. According to the plaintiff, the various advertisements issued by the first defendant-company clearly make out that it proposes to function as a parallel stock exchange which is prohibited by law in view of the existence of the plaintiff-company as a recognised stock exchange and that, therefore, the first defendant-company is liable to be prevented from functioning as a parallel stock exchange or from establishing or carrying on or permitting dealings in stocks, shares and securities in their premises situate in Ernakulam District. In effect the plaintiff c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that the first defendant was only doing 'spot delivery contract' business which is not hit by anything contained in the Securities Contracts (Regulation) Act, that the plaintiff has no prima facie case, that the defendants have invested substantial amounts in acquiring the premises in Ernakulam and have made all arrangements for the carrying on of their business, that the balance of convenience was not in favour of the grant of injunction claimed by the plaintiff and that the application for injunction is liable to be dismissed. 5. In support of its case, the plaintiff produced exhibits A-1 to A-15 showing its recognition as a stock exchange and the notification regard- ing the enforcement of sections 13 and 19, the memorandum of associa- tion and articles of association of the plaintiff-company, the bye-laws and regulations of the plaintiff-company and various advertisements and paper reports claiming to show the nature of the business that is sought to be organised and carried on by the first defendant and a copy of a letter addressed by the Securities and Exchange Board of India to the plaintiff showing that already a request has been made to the Government of Kerala to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . I shall deal with these aspects one by one. 7. The present suit is filed by the plaintiff claiming to be a recognised stock exchange to enforce a right in itself to prevent another organisation from carrying on a similar business within the area of its operation. The suit is filed on the basis that by attempting to carry on similar operations within the area of Ernakulam District the defendants are violating the provisions of the Act and thereby interfering with the exclusive right of the plaintiff and that, therefore, the defendants are liable to be restrained by a decree of injunction from so doing. It cannot be said that the plaintiff is only one among the numerous persons having an interest in the subject-matter of the suit. I am not, therefore, in a position to accept the argument based on Order 1, rule 8 of the Code of Civil Procedure to the effect that the plaintiff ought to have obtained sanction under that provision so as to enable it to maintain the suit. The plaintiff is an incorporated company under the Indian Companies Act and is suing another incorporated company under that Act and its directors. In my view there is no impediment in the plaintiff maintaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m v . Municipal Committee, Chheharta AIR 1979 SC 1250, Ram Singh v. Gram Panchayat, Mehal Kalan AIR 1986 SC 2197, and the various decisions of the High Courts were brought to my notice in support of this contention. I do not think it necessary to refer to all the authorities cited by the learned counsel for the defendants except to quote the observations in paragraph 12 of the judgment of the Supreme Court in N.P. Ponnuswami's case ( supra ) : "It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Water Works Co. v. Hawkesford [1859] 6 CB (NS) 336, at p. 356, in the following passage: 'There are three classes of cases in which a liability may be established founded upon statute. One is, where there was a liability existing at common law, and that liability is affirmed by a statute which gives a special and peculiar form of remedy different from the remedy which existed at common law; there, unless the statute contains words which expressly or by necessary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the authorities under that Act would take action, cannot be said to bar the right of the plaintiff to approach the civil court for the redressal of its grievances. It appears to me that even assuming that the plaintiff is seeking to enforce a right created by the Act alone, this would be a case which would come under the second class of cases referred to in the passage quoted above, that is, a case where the statute gives the right to sue but provides no particular form of remedy, thus, relegating the aggrieved person to the civil court. I am, therefore, of the view that there is no express or implied bar created by the Act regarding the maintainability of the suit in the civil court. Great reliance was placed by the learned counsel on the decision in Subramoniam v . Sreenivasan [1971] KLT 699 and particularly on paragraph 5 of that decision. In that case, it was held by His Lordship Justice Subramonian Poti (as he then was) that: "If a person has a right at common law and in regard to this matter a statute is enacted which statute provides a machinery for working out the remedy if the right is infringed, still such person will be entitled to resort to a civil court to seek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide a machinery through which the said remedy can be obtained, it is not possible to find that there is an ouster of the jurisdiction of the civil court to entertain a complaint that the provisions of the Securities Contracts (Regulation) Act are being violated by the defendants and that they are liable to be prevented from violating that statute. I have, therefore, no hesitation in overruling the contention raised on behalf of the appellants that the only remedy available to the plaintiff is to move the authorities under the Act. 11. The next contention was that the plaintiff has no locus standi to maintain the suit in view of the fact that no legal right of the plaintiff has been infringed and no legal injury has been suffered by the plaintiff. According to the appellants, no legal injury has been suffered by the plaintiff because the defendants have not in any way interfered with the working of the plaintiff as a stock exchange. It is contended that the first defendant as an incorporated company has a right to carry on its business in accordance with its memorandum and articles of association and even if by the carrying on of such business by the first defendant the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laining of an infringement of its legal right to function exclusively as a stock exchange in Ernakulam District and is also complaining that the defendants are violating the provisions of the Act. In my view, there is no impediment to the plaintiff maintaining such a suit in the civil court for the redressal of its grievances. I, therefore, overrule the contention raised on behalf of the appellants regarding the maintainability of the suit and hold that the suit as framed by the plaintiff is prima facie maintain- able. I have dealt with this aspect somewhat elaborately in view of the fact that the major argument raised on behalf of the appellants was on the aspect of the maintainability of the suit. 13. The next contention seriously urged is that the plaint and the affidavit in support of the application for injunction do not make out a cause of action to enable the plaintiff to get the remedy sought for by it. It is pointed out that in the affidavit in support of the application for injunc- tion, there were no allegations which would show that any legal right of the plaintiff has been invaded and that the plaintiff has suffered any legal injury. It is also pointed out that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, therefore, possible to agree with the submission made on behalf of the defendants that the plaint does not disclose a cause of action. I am, therefore, not able to accept the submission made on behalf of the appellants that the plaint ought to be thrown out on the ground that it does not disclose a cause of action. 14. The next question for consideration is as to whether the plaintiff has made out a prima facie case of violation of any statutory provision by the defendants or an infringement of its claimed right to function as the sole stock exchange in the District of Ernakulam. It can be seen from Exhibit A-1 dated 8-5-1989, that the Central Government had granted recogni- tion to the plaintiff as an exchange under section 4 of the Act. Exhibit A- 4 shows that in exercise of the powers conferred under section 13, the Central Government had declared that section 13 shall apply to the Ernakulam District of Kerala State and also that section 19 had been made applicable with effect from 10-5-1979, in the area covered by Ernakulam District of Kerala State. Exhibit A-l coupled with Exhibit A- 4 would prima facie support the case of the plaintiff that the plaintiff is a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest it is expedient to regulate and control the business of dealing in spot delivery contracts also in any State or area (whether section 13 has been declared to apply to that State or area or not), it may, by notification in the Official Gazette, declare that the provisions of section 17 shall also apply to such State or area in respect of spot delivery contracts generally or in respect of spot delivery contracts for the sale or purchase of such securities as may be specified in the notification, and may also specify the manner in which, and the extent to which, the provisions of that section shall so apply." "19. Stock exchanges other than recognised stock exchanges prohibited (1)No person shall, except with the permission of the Central Government, organize or assist in organizing or be a member of any stock exchange (other than a recognised stock exchange) for the purpose of assisting in, entering into or performing any contracts in securities. (2)This section shall come into force in any State or area on such date as the Central Government may, by notification in the Official Gazette, appoint." 'Spot delivery contract' is defined by section 2( i ) of the Act thus: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat: "...There are three modes of dealing in shares and stocks, namely, ( 1 ) spot delivery contract, i.e., a contract which provides for the actual delivery of securities on the payment of the price thereof either on the day of the contract or the next day, excluding perhaps the period taken for the despatch of the securities or the remittance of money from one place to another; ( 2 ) ready delivery contract, which means a contract for the purchase or sale of securities for the performance of which no time is specified and which is to be performed immediately or within a reasonable time; ( 3 ) forward contracts, ie., contracts where under the parties agree for their performance at a future date. If the stock exchange is in the hands of unscrupulous members, the second and third categories of contracts to buy or sell shares may degenerate into highly speculative transactions, or, what is worse, purely gambling ones .." (p. 22) 19. In the said decision, though the question as to whether a spot delivery contract which is exempted by section 18 also comes within the prohibi- tion of section 19 was not discussed as such, it has to be noted that their Lordships have referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of buying, selling, dealing, investing, subscribing, jobbing, financing, underwriting, brokeraging, market- making of securities and managing the funds of any persons or company in various avenues like growth fund venture capital fund and to pass benefits of such portfolio investments to its participants and to act as a clearing house for settlement of transactions and to hold the securities in its custody deposited by the participants and to render financial services to the public. 2 .To apply for and obtain the membership in the stock exchange and generally deal in securities as the member of the stock exchange or to enter into any arrangements with members of the stock exchanges." 22. The argument that spot delivery contracts are not prohibited but are really licensed and permitted as can be seen from Exhibit B-2 does not enable the defendants to run a stock exchange as defined in section 2( j ) of the Act. It appears to me that the attempt of the defendants is really to organise a stock exchange for the purpose of associating in, entering into or performing contracts in securities. In any view even if Exhibits A-6 to A-9 do not make out that the attempt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct a trading floor or permit its members to do business among themselves in such trading floors. It is not, therefore, a case where the entire business activities of the first defendant are prevented by the issue of an injunction. Moreover, if the policy of the law is to permit only one recognised stock exchange in a given area to function as stock exchange for the purpose of the Act, it appears to me that the balance of convenience in law would always be in favour of the grant of injunction to enforce that statutory scheme rather than refusing an injunction so as to enable a person to by-pass that scheme. Running a parallel stock exchange would also certainly affect the functioning of the recognised stock exchange, which is the plaintiff in this case. I am, therefore, of the view that the balance of convenience in this case is in favour of the grant of the injunction claimed by the plaintiff subject to the modification I have noted above. 24. Mr. Krishnamoorthy, advocate, appearing on behalf of two persons who sought to get themselves impleaded in CM. A. No. 87 of 1993 was also heard though the application for impleading itself was not formally allowed. He pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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